New tax credits provoke curiosity

The federal government finally is riding to the rescue of the housing market. Or is it?

Tim Landis

The federal government finally is riding to the rescue of the housing market. Or is it?

People in the real-estate, energy efficiency and home-improvement businesses say approval of an $8,000 tax credit for first-time buyers and a $1,500 credit for making existing homes more energy-efficient is certainly welcome in a tough economy.

Still, plenty of questions remain.

“People are wondering how it works, or if it’s retroactive, but at least people are curious,” said Lynn Raymond, who has worked in Springfield real estate since 1984. Raymond said she has seen difficult markets come and go.

“This one is tough, though I don’t know if it’s as tough as it was in the 1980s,” said Raymond, referring to double-digit interest rates early in that decade.

The Capital Area Association of Realtors reported last month that a 13.3 percent drop in single-family home sales in 2008 apparently has begun to spill over into housing prices, even in traditionally fast-growing communities such as Chatham, Rochester and New Berlin.

A home in Chatham sold for a median price (half above, half below) of $158,500 last year, down 3.1 percent from 2007. The $170,000 median price in Rochester was flat, while the New Berlin median of $120,000 was down 7.7 percent.

The association was quick to weigh in with a “buy a home, get a tax break” statement after President Obama signed the tax credits into law. The statement from association president Nancy Long also pointed out that, unlike a previous $7,500 credit, the $8,000 credit does not have to be repaid.

School district budgets also are directly tied to home prices through property taxes, but Sangamon County Regional Superintendent Helen Tolan said she has not heard concerns yet the housing market has begun to affect revenues.

If the housing market continues to slide, “down the road, it’s certainly going to be a factor,” she said.

Reaction has been similar to the $1,500 tax credit for energy-efficiency improvements.

“We’re starting to hear about it (from customers), but we’re still looking at it from the standpoint of what exactly is in it,” said Bill Mills, manager of energy efficiency programs for City Water, Light & Power in Springfield.

Mills said he believes the federal incentives will only add to the already strong demand for energy efficiency programs. CWLP has rebate programs intended to encourage customer use of energy-efficient heat pumps, water heaters and refrigerators, as well as energy audit assistance and other assistance.

“We projected a 30 percent increase for the budget year (which ends Feb. 28), and we’ve met or exceed that in most of our programs,” Mills said.

The executive director of the Illinois Solar Association said he hopes a 30 percent tax credit on solar equipment purchases and installation will finally jumpstart that market.

Mike Johnson said solar installations were up 57 percent nationwide in 2008, despite the slowing economy. Solar technology has improved significantly since the first big push that followed a 1970s oil embargo, he said.

“We’re cautious but hopeful. There’s some guarded optimism in the market,” Johnson said. “It’s kind of a chicken-and-egg thing. Somebody has to infuse some money to make it a scaleable technology.”

Johnson said one of the biggest challenges is that the same poor economy that prompted the federal stimulus in the first place makes consumers and businesses reluctant to spend.

“People are hurting. I think everybody is waiting to see if the stimulus is big enough. It’s pretty complicated on how it gets down to the household level,” he said.

Carlinville National Bank Shares Inc. president James Ashworth said problems in the real-estate market were among the factors that led state and federal regulators to shut down the former Corn Belt Bank & Trust Co., based in Pittsfield.

Carlinville National Bank took over Corn Belt’s operations, including branches in Jacksonville, Pittsfield and St. Louis.

While a housing recovery is crucial to economic recovery, many bankers are worried by the major intervention by the federal government real estate in the real estate and mortgage business, Ashworth said.

“Frankly, it’s a concern to a bank if the government can come in and dictate different terms on mortgages. How do you secure a mortgage if there’s a possibility the terms are going to change?” said Ashworth.

Tim Landis can be reached at (217) 788-1536 or tim.landis@sj-r.com.

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